Litigation costs are only the most obvious costs. The consequences of abandoning
employment-at-will also have significant impact upon the management of a
business and the opportunities of employees. Everything from the employer's
ability to manage the workplace, to the quality of the workforce, to the
establishment of work incentives and rewards, to employee market mobility are
affected by the straightjacket imposed by "just cause" protection. It is at the
level of management and opportunity that some of the most significant and
substantial costs are incurred.

To
begin with, an unavoidable fact constraining all employment decisions when "good
cause" or "public policy" protections exist is that employers and employees
cannot at any one time know exactly which termination decisions are "legal" and
which are not, since such determinations are always reached after the fact.
Thus, employers desiring to avoid litigation inevitably exhibit more caution
than the law in theory really requires. If there is uncertainty about the
propriety of a termination, the risk-averse employer is likely to not terminate.
With this comes loss to the operations of the employer, and loss to other
employees. Managerial discretion, business efficiency, and employee opportunity
are all negatively affected.

A
significant microeconomic analysis of the impact of shifting away from
employment-at-will was made by Professor Jeffrey
Harrison.
[59]
Harrison found that the derogation of employment-at-will has effects on both the
supply and demand sides of the labor market. As the old doctrine recedes, the
cost of labor to the employer rises, causing the demand for labor to contract.
In addition to an overall loss in jobs, the result is lower wages and less labor
quality.

This
becomes particularly problematic for the very workers whom the advocates of
"just cause" employment are most interested in helping, namely workers caught in
a labor market with inelastic supply and elastic demand. According to Professor
Narrison, the increase in job security brought about by "just cause" protection
"is likely to be paid for disproportionately by workers with low skills and few
alternative employment opportunities. . . (T)he less affluent may pay what
amounts to a regressive tax in order to finance the promotion of the public
interest."
[50]

Professor Narrison's
analysis partially rebuts one of the myths surrounding the adoption of "just
cause" protection. Many "just cause" advocateswill advance the argument that the
costs of being forced to employ certain employees who don't work at maximum
effectiveness is offset by the superior performance given by all of the
remaining employees who bask in the knowledge of job security. Yet the
experience of unions and civil service employees indicates quite the contrary.
With job security comes the knowledge that maximum output on the job isn't
necessary – that the job is guaranteed except in cases of complete ineptitude or
wrongful behavior. Instead of an incentive to work with more dedication, job
security works as a disincentive. Even those employees who might have pursued
opportunity in an employment-at-will setting will experience disincentive, since
the laggards will tend to receive the same rewards as the more energetic. Thus,
there are no profit benefits from granting job security, but instead still more
economic loss to the employer.

From the standpoint of the
employee, basic mobility and opportunity are lost with the adoption of "just
cause" protection. Going beyond the obvious fact that a position retained by an
otherwise terminated employee is not available to a new employee, it should be
clear that the overall mobility of the employee both with his/her immediate
employer and with others is broadly constrained. This occurs because, as
Professor Richard Epstein of the University of Chicago points out, "a rule that
starts with modest ambitions will in the end regulate each and every aspect of
the employment relationship."
[61] Good performance can no longer be as readily
rewarded, since "just cause" has made the entire work environment more static,
with emphasis on equal treatment of employees, regardless of merit. Employees
must be treated bureaucratically, without unique rewards or detriments to
particular employees, in order to avoid the possibility of a lawsuit.
Consequently, the pursuit of better and high paying jobs becomes more difficult,
since the freedom of the employer to establish such positions has been hampered.
Employees have less opportunity to excel, to the detriment of their occupational
ambition and their income.

The static risk-averse
employment atmosphere created by greater job security also harms the less
ambitious or less attractive employee. As Professor Epstein points out:

Where an employer might
have been more willing to take risky employees under an at-will rule, he will
now be less willing to do so under the for-cause rule because any subsequent
demotion or dismissal will be an open invitation to a lawsuit by an aggrieved
employee... (I)t is hard to see how employees as a class benefit from a rule
that can only hamper general mobility in labor markets.

As for the ability of the
employer to run his/her business, the demise of employment-at-will is
potentially devastating, depending on how far courts are willing to go toward
making all employment decisions themselves. No business can operate efficiently
and effectively without good management. One of the most important aspects of
good management is the selection, administration, and replacement of personnel.
If this fundamental right of employers is severely constrained, effective and
efficient management is simply not possible. Not only will the employer be
forced to live with less effective employees than the free market could provide,
but the employer will even be "inhibited from critically evaluating (his/her)
employees because of the constant threat of litigation."
[62]

Constraints on the
employer's ability to chose with whom to work becomes particularly troublesome
at the managerial level. Not only is the responsibility of managerial employees
for the welfare of the organization extremely high, but this level of employment
is characterized by the need for very close interpersonal interaction, with an
emphasis on trust and good communication. Inability to actively choose who will
be a manager can be more than just disruptive – it can destroy the functional
effectiveness of the employer. Even that ardent advocate of a judicial tort
remedy for "abusive discharges", Professor Blades, warned:

The employer's
evaluation of the higher ranking employee is usually a highly personalized,
intuitive judgment, and, as such, is more difficult to translate into concrete
reasons which someone else – a juryman – can readily understand and
appreciate... Compromise of the employer's power to make such judgments about
professional, managerial or other high-ranking employee ... Is especially
undesirable.
[63]

The impact of eliminating
employment-at-will is thus not just a question of up-front litigation cost. The
intangible costs of managerial timidity, employee immobility, lost employee
incentive and opportunity, lower quality labor, and lower workplace morale are
equally great. Freedom is replaced with uncertainty and the tyranny of the
courtroom. Everything becomes risk, with the intervening hand of the law
hovering over every decision. Employment relationships become imposed, instead
of freely chosen. This is not good for the market, and it is not good for either
employers or employees.